No, We Will Not Default the Debt on August 4


All three credit rating agencies have now announced that they’ll downgrade the United States if it fails to pass a debt limit increase and then defaults on its bond payments. Fitch is the latest:

The Fitch credit rating agency has warned that it could downgrade the nation’s credit rating from AAA to B-plus as soon as Aug. 4 if a deal is not struck to raise the debt limit.

….First, the rating would be placed on Credit Watch Negative — a move already adopted by fellow rater Standard & Poor’s. Two days after the deadline, the Treasury has a $90 billion bond due to mature. If the government does not pay in full that bond, Fitch would immediately knock the rating down several notches to B-plus — the highest possible rating for a nation in default.

God knows I don’t want to downplay the urgency of all this, but WTF? Unless I’m missing something big here, defaulting on a bond payment is the last thing the government would do. There are a whole raft of other disastrous things (furloughs, Medicare payments delayed, Social Security checks reduced, etc. etc.) that would have to happen first, and even if they did, the Treasury Department probably has the constitutional right to do whatever it has to do to make debt payments anyway.

So what’s going on here? Why the pretense that we might default on a bond payment on August 4? There’s precisely zero chance of that happening no matter what Congress does.

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